We attended Salesforce.com CEO Mark Benioff’s keynote and analyst question and answer session during day two of Dreamforce, and we came away with a better sense of how the company is handling its mergers and acquisitions pipeline and long-term strategy. Once again, the prospect of a potential Twitter acquisition was top of mind, and while Benioff danced around the subject, we believe both Salesforce’s management and board will maintain prudence when evaluating M&A, and we remain skeptical that this process will result in Twitter’s sale to Salesforce.com (at least at Twitter’s present market valuation). We are maintaining our wide moat rating and $95 fair value estimate, and we think shares continue to present an excellent investment opportunity.

Benioff was repeatedly pressed about the company’s process for both general M&A and for particular companies, including the recently-closed Demandware, the failed LinkedIn bid, and Twitter. We have generally believed that despite Benioff’s big personality, Salesforce remains a finely-tuned machine with plenty of checks and balances between the board and the management team. Those sentiments were largely echoed by Benioff in the Q&A session, as he reiterated that Salesforce.com has a responsibility to its shareholders to evaluate “every potential deal that can create value for our shareholders and our customers.” We can certainly see some value in the Twitter platform, but we ultimately believe the meticulous process with which Salesforce has generally approached M&A throughout its life will prevent the company from making a play for the company, as a deal would likely be financed primarily with equity (Salesforce’s cash position was roughly $1.7 billion as of June 30) and create significant dilution. Although Benioff acknowledged he is looking at Twitter and sees value beyond Twitter’s core data pool, we struggle to see the incremental value that aligns with Salesforce.com’s core business to justify a deal.

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